Cramer: A smokin' hot IPO dangerously overvalued

WING too spicy for Cramer's taste

Last Friday, Jim Cramer's radar went off when he saw Wingstop's explosive IPO, which came public at $19 and closed at $30. Whenever he sees that kind of red-hot IPO action, Cramer immediately dives in to do further research so he can advise investors on whether it is the real deal or dangerously overvalued.

"The truth is, when you dig into the fundamentals here, the stock starts to look a lot less attractive, especially after that huge first-day move," the "Mad Money" host said. (Tweet This)

Wingstop is a chicken wing restaurant with 745 locations spanning 37 states and six countries as of the end of March. About 97 percent of its locations are franchises.

Investors were initially very excited about the IPO because of Wingstop's rapid growth. In 2012 it had just 546 stores, and as of the end of 2014 it had 712. In the first quarter of 2015 it opened another 33 stores. Wowzer!

Lauri Patterson | E+ | Getty Images

In addition to opening new stores like crazy, its same store sales were up 12.5 percent last year and 10.7 percent in the first quarter of 2015. And it's not just the numbers that everyone loves. Last year Food and Wine magazine awarded it as the best chicken wings in the U.S.

"We have to wonder if enthusiasm for the product might have driven Wingstop's stock up to unsustainable levels," Cramer added. (Tweet This)

In fact, when Cramer dug a little deeper into the fundamentals of the company, he saw red flags all over the place.

To start, while the company has grown aggressively, Cramer wondered if that growth is actually sustainable. Additionally, the recent new locations and the double-digit same-store sales tell Cramer that the expectations for Wingstop are insanely high.

Thus, the stock has been priced for perfection, and any stumble will cause the stock to be hammered.

Plus, more than a third of the locations are located in Texas with 82 in Dallas alone. The problem is that Wingstop has pointed to its strength in the Dallas market as an example of how it plans to penetrate the rest of the country. But what if the rest of American doesn't like Wingstop as much as Dallas?

But it was the balance sheet that really horrified the "Mad Money" host.

"We're talking hideous," Cramer said.

At the end of March, the company had $132.5 million in floating rate—not fixed rate—debt, with just $2.9 million in cash. And while it used $35 million of the IPO proceeds to pay down some of its debt, it still has about $100 million in obligations.

It also had $168 million in total liabilities and only $114 million in total assets. That means the book value of the company's equity was negative $54 million.

On top of the horrendous balance sheet, the stock is also too darned expensive for Cramer. Wingstop now trades at 83 times earnings. That is just plain crazy!

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So, while the stock may appear to be sexy at first, Cramer cannot bless this one. It may have a great growth story, but it's just not worth it with the scary balance sheet, pricing to perfection and market's super-high expectations.

Cramer warned that you could get hurt.

"If you got some stock on the deal, you can ring the register. If you like the wings, just go have some, but I wouldn't buy shares in this company because it's simply too spicy for my taste," he said.

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